Trump Tax Plan’s 10 Things You Should Know

After months of speculation, the Trump administration has finally unveiled an outline of its tax plan. As with any presidential plan, the proposal will need to be debated and voted on by Congress before it becomes law.

While many details must still be hammered out, here are 10 things you should know about Trump’s plan:

1. Individuals have a higher standard deduction.

The standard deduction is a default amount of money that can be exempted from income taxes. Currently the standard deduction amount for single filers is $6,300, while the number for married couples is $12,700.

Under Trump’s plan, the standard deduction would double. A single filer would be able to deduct $12,600 from his taxes, while the deduction for joint filers would be $24,000.

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In other words, “a married couple will not have to pay taxes on the first $24,000 it earns,” according to National Economic Council Director Gary Cohn.

According to Breitbart News, around one in three American taxpayers currently chooses to itemize deductions instead of taking the standard deduction. The likely result of Trump’s proposed change would be even fewer people itemizing their deductions, and a simplification of the tax filing process.

2. There are fewer tax brackets and a lower maximum rate.

One of the most noticeable changes under the proposed system is a reduction in the number of tax brackets, and a lower maximum tax rate at the top level. Instead of seven different tax brackets as there are now, the Trump proposal would have only three.

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These brackets would be 10 percent, 25 percent and 35 percent.

The current top tax bracket is 39.6 percent.

3. Most itemized deductions would be eliminated.

Related to the higher standard deduction already mentioned is the elimination of most types of specific deductions. While the deductions for mortgage interest and charitable contributions would remain, other common deductions would be eliminated.

This would include the state income tax deduction, which currently helps offset costs for filers in states with high income taxes.

Individuals who find it advantageous to itemize their deductions would most likely still come out ahead, due to the dramatic increase in the standard deduction level.

4. The corporate tax rate would fall dramatically.

The next part of Trump’s proposal is good news for businesses. Corporations would see their tax rate fall from 35 percent to a much friendlier 15 percent. Throughout his campaign, Trump repeatedly pointed out that the United States has one of the highest corporate tax rates in the world.

Many small businesses are structured as limited liability companies and partnerships. These businesses would also receive dramatic tax breaks. Currently, such “pass through” income is reported on the individual tax returns of each owner, where it can be taxed at a rate up to 39.6 percent.

The new plan would permit small business taxes to stay at the lower corporate rate of 15 percent and essentially allow business owners to keep more of their hard-earned money.

5. The “death tax” and several others would disappear completely.

Several parts of the complex tax code would be eliminated under the proposed plan. One of those would be the estate tax, also known as the “death tax.” This tax was originally intended to affect wealthy Americans who die with an estate valued at more than $5.49 million.

Over time, those wealthy families have developed legal ways to avoid the estate tax. As a result, many of the estates that pay the tax consist of family farms and other so-called “unsophisticated” investments. Trump’s plan would get rid of the “death tax” entirely and remove this complexity from the tax system.

Another complex part of the tax code that Trump would eliminate is called the Alternative Minimum Tax. Many experts believe that this tax has become outdated and redundant because it was not tied to inflation when first implemented.

While the administration’s plan cuts the number of tax brackets from seven to three, it did not outline exactly which income levels would fit into each bracket. For example, it is not known if somebody who makes $50,000 per year would find himself in the 10 percent or 25 percent bracket.

The new structure would likely allow all incomes to receive a tax break compared to the current level, but the specific details remain to be seen.

7. Corporate money in foreign banks may be in limbo.

A common tactic used by large U.S. corporations is to keep a significant amount of money in offshore banks. This legal approach allows the corporation to avoid many American taxes, but it also prevents it from re-investing the money on U.S. soil.

The Trump administration would like that money to return to the United States, where it can be used to create American jobs. A so-called “repatriation holiday” has been informally proposed, which would permit companies to bring money back into the country tax-free for a set period of time.

However, no details of that idea were included in the official Trump tax plan.

8. No child care tax break has been outlined.

The new proposal mentioned a special tax break for child care, which would apply to common expenses like daycare. However, the details of this pro-family tax benefit are still murky, and no specific details have been unveiled.

9. Nobody knows for sure yet what the cost will be.

Tax cuts are always a balancing act. While individuals and businesses benefit from lower tax rates, dramatic cuts can reduce the amount of revenue flowing into Washington. If spending is not reduced at the same time, a deficit is the result.

The Committee for a Responsible Federal Budget has estimated that Trump’s plan would reduce revenue by $3 to $7 trillion. However, the Trump administration is confident that the economic growth from its plan would offset the lost revenue.

Additionally, the president and Congress may be able to introduce spending cuts to reduce the amount of taxes needed to fund the government. Until more details develop, however, the true cost or benefit of Trump’s plan will remain unknown.

10. It’s possible the proposal won’t pass.

Since taking office in January, Trump has discovered that pushing his plans through Congress may be harder than he anticipated. Skeptics have pointed to the inability to repeal Obamacare as evidence of this challenge.

One of the main problems with getting the tax proposal passed is that it might create deficits unless specific budget offsets are put in place. Many Republicans in the House and Senate are wary of plans that increase the deficit, even in the short term.

The Trump administration will be forced to convince Congress that the new plan is a net benefit for the American people — and in Washington, nothing is ever guaranteed.

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